Korea finds a new way to exploit expertise

Korea finds a new way to exploit expertise
Financial Times/GULF NEWS Published: August 26, 2007, 23:40

Doosan Infracore's recent $4.9 billion takeover of Bobcat of the US is a landmark deal because it is the largest acquisition of a foreign target in Korean corporate history.

But it is significant for a second reason. Unusually, Doosan said it would hold on to the management teams at Bobcat and the other two units it was buying from Ingersoll-Rand, the US conglomerate.

"The businesses we are acquiring have outstanding management personnel and engineers, which we consider to be the most important criteria of our acquisition strategy," said Park Yong-maan, vice-chairman of Doosan Infracore, South Korea's largest construction equipment maker, as the deal was announced.

"We therefore plan to maintain the current management to best utilise their expertise and skills in an effort to evolve Doosan Infracore into truly a global company," he said, adding that it was Doosan Infracore's objective to secure world-class talent and R&D capability.

This marks a departure for Korean companies, which have traditionally despatched local managers to run overseas businesses - whether they be greenfields investments, export bases or acquisitions. Doosan was already a trailblazer in corporate Korea. It is the only conglomerate led by a foreigner, James Bemowski, an American who headed the Korean office of McKinsey and Co, the global consultancy, during the 1990s. He became chief executive of Korea's 11th largest conglomerate in November last year. The group, which concentrates on traditional industries such as food, construction and machinery, has also been aggressively scouting for Korean managers with experience at international companies such as Yahoo and IBM, as well as McKinsey, with which

Doosan has close ties. With the abundant liquidity in Korea and stronger efforts to find new markets, analysts say there are likely to be more foreign takeovers by Korean companies, which have historically shied away from cross-border M&A.

So Doosan's open-minded approach to hiring foreigners will be critical if Korean companies are going to succeed in markets abroad, says Jonathan Holmes, head of the Seoul office of Korn/Ferry, the international headhunting firm.

"On the strategic side, there is a critical issue that Korean companies have to face when they spend $4 billion or $5 billion on an acquisition - how do they integrate those businesses from a management point of view?" says Holmes.

"How are they going to harmonise two distinct business cultures without destroying value?" The tradition has been for Korean companies to send a man from head office to manage the foreign business, but that doesn't work well these days, he says. "That's not the way to integrate global businesses."

At home, Korean companies are "still a little bit afraid of hiring foreigners for strategic positions", says Kim In-hye, who runs Heidrick and Struggles, another big international headhunter, in Korea. "They tried hiring Korean- Americans because they thought they would understand the culture more and even if they didn't speak Korean, they would still have something in common."

Korean corporate culture is certainly idiosyncratic, with strict hierarchical structures based on Confucian traditions and where micro-managing bosses are to be strictly obeyed and never questioned. Foreign managers often tire of "having to ask Seoul for authorisation to buy a pencil sharpener," says one foreign executive.

There is also a very strong culture of bonding through eating and drinking together - called "hweshik" or "company meals" - that often entails drinking several nights a week. Hiring Korean-Americans was not very successful, though, and Korean companies have reverted to sending Koreans abroad to run international units and hiring middle managers in the local market.

Kim says some of her clients are bringing the foreign managers of international units to Korea for a year, so they can work in the head office and learn about the corporate and Korean culture, before returning to their post. "The main reason Korean companies failed and had high turnover of foreign managers was because of a lack of cultural awareness on both sides - they had no common ground," she says.